Are Funeral Expenses Tax Deductible?
With the median cost of a funeral in the $7,500 range (and with some funerals costing over $10,000), it can be tempting to deduct funeral expenses on your income tax return. However, unless you’re willing to run the risk of an IRS audit and the heavy fines and penalties that will ensue, don’t do it! Funeral expenses are only deductible if paid out of an estate. That means individuals cannot claim funeral expenses on their income tax returns (IRS Form 1040), and in addition, funeral expenses cannot be deducted on the decedent’s final tax return. In the official language of the IRS ‘Miscellaneous Deductions” guide (Publication 529), “Burial or funeral expenses, including the cost of a cemetery lot” are nondeductible. It is also important to note that if you pay funeral expenses for a loved one or close friend, you cannot treat those expenses as a medical deduction on your tax return.
Claiming a deduction
The only way to deduct funeral expenses is for the estate to pay the burial costs and then claim the deduction for estate tax purposes on IRS Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return). The funeral expense deduction is one of several deductions that are used to determine the taxable estate, and thus the estate tax amount. The executor or administrator of the estate is responsible for filing Form 706, and they must attach a death certificate as required. In addition, the executor should advise those in charge of making the funeral arrangements that reimbursement for funeral expenses is not guaranteed, and is based on what is considered reasonable under the law.
Which costs are eligible?
Funeral expenses that can be itemized and deducted include:
Funeral director service fees, including embalming and body preparation charges.
Casket costs and interment fees.
Transportation expenses - movement of the body to and from the funeral home, plus hearse rental costs.
Visitation and/or ceremony expenses - catered food, flower arrangements, clergy honorarium.
Cost to purchase a cemetery/burial plot.
Headstone or grave marker expenses.
If the decedent’s estate is reimbursed for any funeral costs, the reimbursement must be deducted from total expenses before claiming the deduction on Form 706 - this includes any federal payments such as Social Security or Veterans death benefits.
The person responsible for making the funeral arrangements and paying the resulting expenses should keep all the original invoices, receipts, and statements as necessary. Also, remember that the payer runs the risk of not receiving full reimbursement if the funeral costs are deemed unreasonable, or the estate becomes insolvent. This is why it is important to plan for future funeral and burial expenses, and talk about your plans with your family members so they know your final wishes. Planning ahead allows you to do it your way, and will provide much-needed peace of mind to your family when the time comes. If you’re ready to start your journey of preplanning, don’t hesitate.
Article Submitted by: Tim Dinan, Cook Family Funeral Home & Cremation Services, and Hillcrest Cemetery
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